Impacted by MF Global, Patsystems Receives Takeover Offer

ION Trading has until Dec. 26 to make a cash offer for the trading software house, which is owed substantial revenues by MF Global.

Ensnared in the collapse of MF Global, its largest customer, Patsystems, a software developer of trading systems for futures and options markets, said it received a takeover offer from ION Trading, another software provider.

ION Trading is Patsystem’s single largest shareholder, and has been holding 29 percent of the shares for the past two or three years, according to a spokesman for the vendor. ION has valued each share in Patsystems at 14 pence or 20 cents per share. Based on its current market cap of 29 million pounds, ION is valuing the software firm at $45 million.

ION — which earlier this year acquired Wall Street Systems — now has until Dec. 26th to either announce a firm intention to make an offer or not.

Given the impact of MF Global’s bankruptcy, Patsystems is considering the possible cash over by ION, noting that it has greater financial stability, as well as the benefits to staff, customers and product development, according to the statement.

“MF Global was the single biggest customer and with that going into administration, they’re not able to recoup the money,” comments a spokesman for Patsystems.

MF Global, the futures broker led by former Goldman Sachs investment banker Jon Corzine, who steered the firm into making heavy bets on risky European debt, owed money to Patsystems at the point of its collapse, said the vendor in its statement. The commodities broker was expected to provide revenues throughout the remainder of 2011 and beyond. This is problematic since the majority of the revenues hinge on transactions by MF Global’s own customer base, which, are awaiting the return of their funds.

The release of client funds to enable MF Global’s customers to migrate to new platform providers and resume trading is caught up in the multijurisdictional nature of the bankruptcy, notes the company.
This has also delayed the process of establishing the full extent of recoverability on sums owed to Patsystems, the company said.

MF Global has 38,000 customer accounts. Most of MF Global’s customer accounts are frozen in the bankruptcy process, or they are missing. If the MF Global clients are able to migrate to other futures brokers that use Patsystems platform, the software company said, that would lessen the impact of the direct loss of MF Global’s business.

Recently, the company notes, there has been a release of some of the client funds by trustees of the North American MF Global business and a transfer of client positions to other brokers and futures commission merchants (FCMs), with a number of these broker and FCMs being Patsystems clients.

However, substantial amounts of MF Global customer funds are still frozen in broker accounts. According to media reports last week, authorities managed to locate only about 60 percent of the segregated customer funds three weeks after the parent firm's Oct. 31 bankruptcy. A trustee of the North American MF Global business doubled the estimate of missing funds from $600 million to $1.2 billion.

In addition, outside of the USA, Patsystems has seen a number of professional/institutional customers of MF Global began the transfer of their business to other customers of Patsystems.

But, with minimal release of client funds for individual traders in countries other than the U.S., this has meant there is little trading activity by those clients to date, and the company doesn’t expect this to change significantly before the end of the year. The company, which had revenues of $30 million, expects that Patsystems revenues and profits will be lower by approximately 500,000 pounds, which is equivalent to $779,000 (USD).

On top of this, the company completed a preliminary assessment of the financial impact of the collapse of MF Global. Patsystems calculated that MF Global owes it sums of 900,000 pounds or $1.4 million (USD). The company is in dialogue with trustees and administrators with respect to recouping this amount as well as the ongoing provision of systems, it said. However, the company said it “cannot be certain of the extent to which these monies will be fully recovered,”

“This is a huge frustration but it’s not the end of the world for them,” noted the spokesman. “It just means that this, in conjunction with other headwinds, is going to give a significant hit on their profits.”

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio